Commissioner of Income Tax vs Madura Coats Ltd.

K. Raviraja Pandian, J.—By framing the following questions of law, the revenue has come up on appeal u/s 260A of the Income Tax Act:

Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding the expenditure incurred on community

assistance programme as business expenditure when such payments would only be allowable as a deduction u/s 80G ?

Whether on the facts and circumstances of the case, the Tribunal was right in law in holding the expenditure incurred on community assistance

programme as business expenditure merely because the welfare measures were carried out in localities close to their manufacturing units ?.

The relevant assessment year is 1989-90. The facts of this case are as follows:

The assessee is engaged in the business of manufacture of yarns and threads. For the assessment year 1989-90, the assessee claimed a deduction

of Rs. 5,61,668 spent on community assistance programme as business expenditure. The assessing officer disallowed the same stating that shown

the philanthropic mind of the company, but not the commercial expediency. On appeal by the assessee, it was contended that the welfare measures

were taken mostly in the vicinity of the assessees manufacturing units, therefore their employees would also be benefited. A part of the expenditure

was for maintenance of gardens and was in the nature of advertising expenditure. The Commissioner (Appeals) however upheld the disallowance

made by the assessing officer. The assessee filed a second appeal before the Tribunal. The Tribunal, allowing its own order for its earlier years,

held it is an allowable expenditure. Aggrieved against that order, the revenue has come up with the present appeal.

The appeal has been duly served on the respondent on 6-9-2005. However, the respondent has not taken any action either to engage a counsel

or to appear before this Court to put forth his case in spite of the fact that the assessees name has been printed in the cause list. Hence, we are

deciding the matter on merits.

The learned Counsel for the revenue has brought to our notice that the issue is covered in favour of the assessee and against the revenue. In the

case of Commissioner of Income Tax Vs. Madras Refineries Ltd., , the Division Bench of this Court has held in favour of the assessee. We have

also gone through the judgment, wherein a sum of Rs. 15,32,000 spent for the purpose of establishing drinking water facilities to the residents in

the vicinity of the refinery and also provided aid to the school run for the benefit of the children of the locality is claimed as business expenditure in

the above said factual circumstances, the Division Bench observed as follows:

The concept of business is not static. It has evolved over a period of time to include within its fold the concrete expression of care and concern for

the society at large and the people of the locality in which the business is located in particular. Being known as a good corporate citizen brings

goodwill of the local community, as also with the regulatory agencies and the society at large, thereby creating an atmosphere in which the business

can succeed in a greater measure with the aid of such goodwill. Monies spent for bringing drinking water as also for establishing or improving the

school meant for the residents of the locality in which the business is situated cannot be regarded as being wholly outside the ambit of the business

concerns of the assessee, especially where the undertaking owned by the assessee is one which is to some extent a polluting industry.

In the light of the observation referred to above, the expenditure incurred by the assessee on community assistance programme and the welfare

measures undertaken in the vicinity of the assessees manufacturing unit in which the employees would also been benefited cannot be regarded as

otherwise than the line in which it was considered by the Division Bench judgment. Hence, we are of the view that the question of law raised has to

be answered in favour of the assessee and against the revenue.

The appeal is dismissed. No costs.